Payment card terminology

shutterstock 126299303

It's easy these days to make a payment by credit or debit card, either in a store or online, but behind the simple front end, there are many different processes and organisations ensuring that everything runs smoothly. If your business is planning to accept credit card payments, you'll need to know your way around the payment card network so that you can select the best options for your needs.

To help you get started, we've compiled some introductory articles about accepting payment cards, and our guide to payment card terminology explains all the parts of the engine that runs the system.

Bureau service: a one-stop-shop for online retailers that combines the merchant services and payment gateway. The bureau service basically operates its own merchant account on behalf of the retailers who use the service.

For more information see our article about accepting payments online.

Card issuer: the bank that issued the card to the cardholder.

Card scheme: The two biggest card schemes worldwide are Visa and Mastercard, and they act as the glue holding the whole system together. The card schemes set the rules for the payment network, and act as an intermediary between the card issuer and the merchant acquirer. A percentage of each transaction fee (the interchange fee) goes to the card scheme.

Chargeback: a transaction that has been disputed by the cardholder. Chargebacks can be initiated because of a fraudulent transaction or because the merchant has failed to fulfil their side of the transaction (e.g. not shipping goods, not refunding faulty goods).

See our article about chargebacks and how you can reduce your risk.

Ecommerce cart: shopping cart software runs on the retailer’s website. It collects all the transaction details – items, price and address details and forwards them to the payment gateway or bureau service ready for payment processing.

Interchange fee: a percentage fee charged by the card scheme on each transaction. The level of the fee differs for each card scheme and is usually higher for credit cards than for debit cards.

Merchant acquirer, merchant account, merchant services: In order to accept card payments, a retailer needs access to a merchant account, usually with a bank. When a customer makes a payment via credit card, the merchant acquirer receives payment from the card issuer via the card scheme and deposits it into the retailer’s merchant account.

The merchant account is entirely separate from the retailer’s other bank accounts and does not have to be held with the same bank. The merchant services bank will generally charge a fixed monthly fee, plus a percentage fee on each transaction (some of which goes to the card scheme).

For more information see our article about choosing a merchant account.

MOTO: Mail Order/Telephone Order Payments - a type of merchant account for companies who need to take card payments over the phone or by mail order, but not online.

Payment terminal: The piece of hardware that collects the transaction data at the point-of-sale and sends it to the network for processing. The terminal connects to the retailer’s merchant account via a phone line or a secure internet connection.

Payment gateway: The online equivalent of the payment terminal. The payment gateway software collects the customer’s card data and passes it to into the card payment network for processing. For smaller merchants without access to secure servers that meet industry requirements, the payment process takes place on the payment gateway servers, with the customer being redirected. The payment pages can often be customised so that the customer has a seamless experience.

For more information see our article about accepting payments online.